Brazilian Miner Vale Tumbles After Dam Disaster

By

Alessandra Freitas

Jan. 25, 2019 6:49 p.m. ET

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Photograph by Douglas Magno/AFP/Getty Images

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American depositary receipts of
Vale
(VALE) tumbled as much as 14% in midday trading Friday after three dams ruptured at an iron ore mine in the Brazilian state of Minas Gerais, the second potentially deadly accident in just over three years for the mining giant. The breach sent a wave of mud into the community, leaving at least 7 people dead, 200 people missing and destroying many houses and local businesses. The dams were located in the Feijão mine, which produced about 7.8 million tons of iron ore in 2017, according to the company.

In a brief statement, the company said it “doesn’t dismiss the possibility of casualties.” Many people are said to be trapped in the area due to the heavy mud flow, and locals are also reporting more fatalities. The cause of the breach is still unknown.

Vale’s bonds slumped as well. Vale had gained 12.7% in the past year through Thursday, before the dam’s collapse. Markets in Brazil are closed due to a local holiday.

JPMorgan analyst Rodolfo Angele noted, according to the Fly on the Wall, that Vale produced about 60% of its iron ore through operations that rely on dams, and that the incident will likely create higher scrutiny over the regulatory framework of the mining industry. It will also likely result in fines, according to Angele, who has an Overweight rating on Vale.

RBC Capital Markets analyst Tyler Broda, who rates Vale Underpeform, writes that “this could be another unfortunate issue with tailings management,” i.e. the process of controlling the waste slurry from mining operations. “We continue to take a cautious approach on Vale shares and this dam failure could add to the challenges facing the company, but at this juncture it is too early to tell on any impact,” Broda concludes.

The incident happened just three years after a larger dam owned by Vale ruptured in the same region, killing 19 people and leaving a trail of chaos that is now considered Brazil’s biggest environmental disaster. Vale is just now preparing to resume operations at the Samarco iron ore mine, where the first catastrophe happened, although some may wonder if that project could be impacted.

The new dam breach will test Vale’s new CEO Fabio Schvartsman, who took control in May 2017. Since then, the company’s stock has surged more than 50%.

It may be a test for the new administration of Brazil’s far-right President Jair Bolsonaro too. He deployed personnel to handle the rescue and said he plans to visit the area tomorrow. The vice president released a statement saying it’s necessary to investigate whether there was “malpractice, recklessness, and negligence.” Bolsonaro is widely viewed as a business-friendly leader, however he surged to power thanks in part to populist leanings. (Minas Gerais was also the state where he was stabbed while campaigning.)

Brazilian Miner Vale Tumbles After Dam Disaster

American depositary receipts of Vale (VALE) tumbled as much as 14% in midday trading Friday after three dams ruptured at an iron ore mine in the Brazilian state of Minas Gerais, the second potentially deadly accident in just over three years for the mining giant.

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